Missoula's News Journal

PSC begins inquest into Missoula water rates

Attorney’s representing the city of Missoula and the Montana Consumer Counsel face the Montana Public Service Commission in an inquest that began Tuesday into whether rates charged by Mountain Water Co. are “just and reasonable.” (Photo by Martin Kidston)

By Martin Kidston/MISSOULA CURRENT

A consumer advocate told the Montana Public Service Commission on Tuesday that the former owner of Mountain Water Co. “took the money and ran” when it sold the utility to a Canadian firm last year, and that any savings achieved in the deal should be returned to rate payers.

The PSC convened the proceedings to investigate whether water rates resulting from the sale of Mountain Water to Algonquin Power and Utilities Co. are “just and reasonable.” While the commission did not render a decision, it did uphold its protective order safeguarding certain financial information related to the deal.

The city of Missoula and the Montana Consumer Counsel argued that such information should be made public if the PSC truly plans to investigate Missoula’s current water rates.

“When a utility asks that rates be based on a cost, the public has a right to know what that cost is,” said Dennis Lopach, the attorney representing the MCC. “The commission opened the subject when it asked whether or not the existing rates are just and reasonable. This goes to the question of what the acquisition of capital consisted of.”

Bill Killeen, the Toronto-based director of regulatory operations for Liberty Utilities Co., which is owned by Algonquin, said the company generally seeks a rate case when it’s not earning its allowed return, and it’s not recovering its costs.

Killeen said that happens on occasion when investments have been made and the rate base has risen.

“I don’t use the term ‘winning’ when I talk about our rate cases,” Killeen said. “What we’re trying to do in our rate application is to establish a revenue requirement and rates that are appropriate to recover our costs.”

Earlier this year, the PSC granted Liberty a protective order safeguarding certain information regarding finances, debt and other rate issues regarding the purchase of Mountain Water. The regulatory commission maintained its pro-business stance on Tuesday despite objections by Lopach and city attorney Natasha Prinzing Jones.

However, the PSC did allow Killeen to explain why Liberty considered the rates it secured on its $235 million loan as a trade secret. Killeen said the loan agreement was made with several large financial institutions.

“It identified all the formulas for those various components of the debt, and they were all variable,” Killeen said. “Within that, there are some terms – some discounts – that the financial institutions provided for certain pieces of the loan agreement. It’s those discounts that we believe are confidential and not privy to the public domain.”

PSC Commissioner Travis Kavulla also quizzed Killeen on Algonquin’s nebulous structure. Kavulla was the only member of the commission to ask Killeen a question, though all five would question the consumer advocate.

“By my count, there are five different corporate vehicles that are titled Liberty,” Kavulla said. “I’m just wondering what they all do. Why do they exist?”

Killeen said the corporate structure “rolls up” to Algonquin, a publicly traded company on the Toronto Stock Exchange. Algonquin serves as the parent company for all of Liberty’s entities.

“I am not an expert in our organizational structure,” Killeen added. “I’m assuming they’re all set up for various business reasons – various tax reasons – but I don’t know the specifics.”

John Wilson, a public utility expert, spent the morning answering questions from the PSC. The consumer advocate suggested that Carlyle took its money and ran, and that Algonquin “offended” the PSC’s jurisdiction to regulate utilities that do business in the state.

“You have an owner in Algonquin, and that ownership transfer has not been approved,” said Wilson. “It doesn’t mean there aren’t customers who ought to be protected at this point from overcharges. This company is not incurring the costs it’s charging to the customers.”

Commissioner Kirk Bushman questioned Wilson at length, asking if the PSC should have sought an injunction to stop the transfer of stock in the unauthorized sale. Bushman also asked if state regulators should permit a company to pay more for an asset when it secures cheaper financing.

“State regulators absolutely should not permit companies to charge more than their cost of capital,” Wilson answered. “Buying in at 4 percent capital while charging rates that reflected 16 percent – they thought they were going to get away with it.”

Commissioner Roger Koopman said the PSC was trying to walk a fine line. While it would like to justify a rate decrease for local water customers, he said, it also had to consider the company.

“This commission would love to be able to justify rate decreases for the local customers of Mountain Water,” said Koopman. “But we also have the responsibility to function responsibly for a private company serving an incredibly important public service to the community of Missoula, and we need to do right by them as well, or else we’re not helping anybody.”

Koopman suggested that Algonquin had achieved a $20 million savings by putting together a “good business deal.” Wilson took exception to the suggestion, saying Algonquin hasn’t been forthcoming with the PSC.

Wilson added that the nuances of the acquisition have only been partially revealed to the regulatory board. The PSC is obligated to look deeper, he said.

“You have not attempted to exert any regulatory control over Algonquin, or even look deeply into what Algonquin has done,” Wilson said. “We’re operating here as if Liberty has done something, and Liberty is clearly an intermediary here used for convenience purposes by Algonquin.”

The PSC is expected to revisit the issue at a work session within the next few weeks. The city of Missoula is also awaiting a ruling by the Montana Supreme Court regarding Mountain Water’s appeal of a lower court ruling that gave the city the right to acquire the utility through eminent domain.

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